John Deere shares slide on questions over how long farm boom can last
John Deere tractors are seen for sale at a dealer in Longmont, Colorado, U.S.. REUTERS/Rick Wilking/File Photo
Deere & Co. shares slipped Friday as investors questioned how much longer the boom in sales of tractors and other farm machinery can last amid slumping crop prices.
The world's top agricultural equipment producer lifted its profit outlook for the year and its third-quarter earnings results surpassed analyst estimates, according to a statement Friday. Still, farmers are likely to slow machinery purchases as soon as grain markets normalize. Deere shares fell as much as 5.5%, the most since April.
Farmers have been paying up for machinery in the wake of Russia's invasion of Ukraine, which sent global crop prices surging. Deere's net sales and revenues jumped by 12% in quarter ended July 30, with gains driven by higher prices.
Deere's earnings beat "suggests a higher earnings ceiling this cycle," said Bloomberg Intelligence senior industry analyst Christopher Ciolino. "Yet we believe the better-than-expected results are likely to exacerbate concerns around a peak" in the agriculture cycle.
Deere's reported adjusted earnings per share of $10.20 beat estimates of $8.19. The Moline, Illinois-based company now expects net income for fiscal 2023 between $9.75 billion and $10 billion. That's above its outlook in May for $9.25 billion to $9.5 billion.
"Fundamentals are expected to continue fueling solid demand for our equipment," Chief Executive Officer John May said in the statement.
However, cracks are starting to show. Expanding harvests in the US, Brazil and Russia are cooling crop markets, leaving farmers with less money to spend on machinery. Futures for corn, the most widely sown US crop, slumped to the lowest since 2020 this week.
Deere said it was trimming production in Brazil, where political uncertainty and lower-than-expected farmer income weighed on sentiment. The company said it expects South American tractor and combine demand to be to flat to down 5%, compared to an earlier outlook for flat demand.
Deere rival CNH Industrial NV which manufactures popular New Holland and Case brands last month said it's limiting how much it's raising prices for machines with farmer incomes coming down.
Bloomberg.
